You are on page 1of 5

customer at about 80%, out of which 99%

constitutes the unorganized sector. By 2006,


organized retail in India was only 3% of the
FORMATS VS. FEELING
total US$350 billion retail industry. But it is
(ORGANIZED expected to grow 20- 25% yearly, owing to
changing lifestyles of consumers, rising
RETAILING VS. MOM & income and favorable demographic patterns.

POP STORES) Retailing concept is fast catching up the


minds of the consumers in India. The
organized retail sector is expected to rise
Authored By: more than GDP growth in the next five years.

Abhishek Anand Food and grocery as a segment and


hypermarkets as a format are expected to be
IIM Indore – Batch of 2008
the major drivers of the organized retail
Mail : p06abhisheka@iimidr.ac.in industry in India.

Malls in India are increasing as these are


positioned as a one-stop-shop for shopping,
INDIA RETAIL SECTOR

A
entertainment, leisure and eating-out needs
fter 60 years of unorganized
of the consumer. By the end of 2007, 700
retailing and fragmented kirana
malls are coming up all over India, of which
stores, the Indian retail industry has
40% are concentrated in the smaller cities.
finally begun to move towards
While organized retailing is growing at an
modernization. New marketing formats like
annual rate of 35-40% in large cities, it is
departmental stores, hypermarkets,
growing at 50-60% in small towns. Major
supermarkets and specialty stores are
players are also preparing themselves to take
spearheading the modernization drive. The
on the competition from the global players
annual growth of department stores has been
like Wal-Mart and Metro. Reliance is coming
estimated at 24%, which is faster than overall
with a massive investment in retail sector.
retail; and supermarkets have taken an
They are planning to invest US$5.6 billion to
increased share of general food and grocery
open stores in 1,500 towns and cities. Sunil
trade over the last two decades. Food and
Mittal's Bharti Enterprises, which has
grocery segment is growing, which accounts
announced its franchising agreement with US
for largest share of retail spent by the
retail giant Wal-Mart to start a chain of retail
stores in India, has said that would invest stores have continuously increased for the
about $7 billion dollars in it by 2010. past 60 years. Only 4% of the retailers in the
unorganized sector have shops that occupy
With such investments coming into the retail
more than 500 sq ft. In a way, small retail
market what will happen to the kirana or
business in India helps absorb about 6 to 7%
Mom & Pop stores of India. Will they be able
of the huge mass of the unemployed.
to withstand the onslaught from big players?
To study the impact of retailers on the mom
and pop stores we need to can analyze the
INDIAN RETAIL STRUCTURE impact of Wal-Mart in USA. Wal-Mart Watch
features an academic article claiming that in
Iowa, Wal-Mart’s expansion has been
Retail Formats 2004 2005 responsible for widespread closings of ‘mom
and pop’ stores, including 555 grocery stores,
Total Grocery 5,170,70 6,037,73
298 hardware stores, 293 building suppliers,
Outlets 9 8
161 variety shops, 158 women’s stores, and
116 pharmacies. If these figure are anything
Traditional grocery 4,525,264 5,273,310
to go by then Mom and Pop stores are going
outlets
to face tough times ahead.
Supermarkets 175 2,314
MOM AND POP STORES
Other grocery 645,270 762,114 Let us analyze the characteristics of Mom and
outlets Pop Stores.

Total Drugstores 352,786 405,743 Customer Relations

Mom and Pop stores in India have survived


Traditional 247,582 276,058
for the last 60 years on the basis of the
medical/drugstore
customer relations they manage to leverage.
s
This gives them a certain competitive

Cosmetic stores 105,204 129,685 advantage over a retailing giant. MAP stores
usually are the places where a customer finds
intimacy, ubiquity and neighborliness in the

The above table shows the retail structure in way the shopkeeper interacts. The

India. The number of traditional grocery shopkeeper is more of a friend to the


customer than a mere service provider. He Let us analyze the characteristics of
knows the name of the customers and is organized retailers.
willing to have a conversations with the
Economies of Scale
customers without giving a fabricated smile.
With huge investment in the retail sector,
The shopkeeper usually offers monthly credit
organized retailers have been able to benefit
tohis regular customers. Further he is willing
from the economies of scale. They have been
to deliver Rs 5 worth of medicine to a home at
integrating vertically from retail outlets to
midnight.
building malls and as a result manage to
Inefficiencies in Process
reduce the cost of operations.
Mom and Pop stores are inherently
Efficient Processes
inefficient. Inveterate wastefulness of small
Retailers like Reliance have invested a lot in
shops, lifts prices 20 percent higher than they
the its processes. Supply chain Management
are in big stores. They lack expertise in
has been the buzz word for process
inventory control and category management,
improvements. This helps the retailers in
hence they oftendo not buy the most
reducing cost and transferring this cost
profitable product mix.
reduction to the customers.
Bargaining Power of Suppliers
Bargaining Power of Suppliers
Mom and Pop stores deal in both branded
At present suppliers like HLL enjoy
and non branded products. They usually buy
bargaining power when dealing with
in small quantities. This can lead to problems
retailers. But Wal-Mart in USA has changed
if suppliers start comparing his dealings with
the scenario completely. It is a well known
Retail joints who ensure bulk orders from the
fact that whatever Wal-Mart demands the
suppliers along with good display facilities.
suppliers have to provide. If that model could
Bargaining power of Customers
be replicated in India then bargaining power
Customers are well informed of the goods, of suppliers will be reduced.
prices and the variety available in the market.
Bargaining power of Customers
Also the switching cost for the FMCG products
Retailers have to cater to different consumer
is specially low. As a result the customers are
preferences in different regions. Some of the
in a better position to bargain than a shop
retailers are working on the image of retail
owner.
outlets as a discount stores. Big Bazaar has
ORGANIZED RETAILERS had its “Sabse Sasta Din” around the 26th Jan
for the past 2 years in which it slashed prices display of goods so as to have an aesthetic
of goods by 40%. Wal-Mart has a strategy of appeal to the customers and also provide
“everyday low prices” which conveys the idea suppliers with a chance to promote their
of a discount store. Also the retailers provide products. The stores can come together and
the customers with a wider choice of form consortia for helping each other. For
merchandise. instance a group of 150 mom-and-pop shops
with annual sales of $22 million in the city of
Customer Relations
Rajkot has hired Technopak, the retail
Customer relations is an aspect where the
consultancy to help them survive. These
organized retailers have found themselves
stores, , want to build a joint purchasing
vulnerable. Although efforts have been made
organization and computerize their
to improve customer relations, Mom and Pop
operations.
stores still hold an advantage in this aspect.

The analysis clearly shows that the retailers Mom and Pop store should be looking to

are at a distinct advantage vis-à-vis Mom and develop themselves as a specialty store. This

Pop stores. The question arises what should will help them to focus on a single line of

the small stores do in order to respond to the products and as a result in improving the

retailing onslaught. processes. Also the consumers will have more


choice than that in the retail outlets where
WAY AHEAD FOR MOM AND POP STORES only popular brands are available. But
Mom and Pop stores in recent past have been feasibility needs to be studied before

lobbying with government to impose a venturing into a specialty store business.

restriction on foreign retail players in India. Finally the Mom and Pop stores should keep
They have managed to get support from the on leveraging the customer relationship the
political groups as well. But this is only a store has developed.
short term measure to avoid the competition.
WAY AHEAD FOR ORGANIZED RETAILERS
The best way ahead for Mom and Pop stores
Organized retailers have been trying to
is to learn from the organized retailers and
improve the customer relationship by
try to incorporate features which are feasible.
emulating Mom and Pop Stores. The stores
First of all they need to improve the
intentionally make the setting of a wholesale
processes. Careful inventory management
market than a sophisticated shop. For
needs to be done by these stores to reduce
instance the retailers hire people who scream
losses. Also the stores need to improve their
and sell the products like vegetables. They
make provisions for customers to get
products on credit.

The retailers need to give their customers a


more personalized shopping experience. This
requires a complete study of individual
consumer behavior. The retailers should
continue to benefit from the cost advantage
and the variety they offer to the customers.

The Retail stores are bound to impact some of


the Mom and Pop stores in the long run. The
extent of effect will be decided by the
strategies of the organized retailers and Mom
and Pop stores in the coming future. But in
the battle between Retail stores and Mom and
Pop stores the customers are definitely going
to benefit.

COMMENTS

Mail your comments to editor_i@iimidr.ac.in